Europe calms as financial spiral slows

Borrowing rates down for debt-laden nations, but hurdles still remain

Three weeks into the year, borrowing rates for debt-saddled countries have fallen to more manageable levels. Auctions of government debt have gone better, a sign of increased investor confidence.

And although it may have been an embarrassment, especially to France, a sweeping downgrade of nine European countries last week by credit-rating agency Standard & Poor's has been met with a shrug in financial markets.

All this is in stark contrast to the final weeks of last year, when countries such as Italy, Spain, Portugal and Greece watched helplessly as the costs of managing their debt spiraled ever higher and governments fell in Athens and Rome.

High hurdles remain: Greece must still cut a deal with its private creditors, to say nothing of the long-term problems: massive debt, uncompetitive economies and the prospect of years of cutbacks in public spending.

But, for the moment, the continent is exhaling.

Portuguese Finance Minister Vitor Gaspar, after his country successfully sold 2.5 billion euros of its national debt on Thursday, ventured that it was "a sign that we may be coming to a turning point."

Among other good news this week in the European debt crisis:

Despite having an AA+ credit rating now, France easily sold 9.5 billion euros, or about $12.2 billion, in bonds at interest rates lower than at previous auctions when its rating was AAA.

The sale eased fears that S&P's downgrade of France would hurt the finances of the continent's No. 2 economy.

Stock indexes in Britain, France, Germany, Italy and Spain, plus the Dow Jones industrial average in the United States, have climbed back close to their levels from last August, when the crisis spread to Italy and took a turn for the worse.

The European Central Bank, chief monetary authority for the 17 countries that use the euro, gets some of the credit for sending cash flowing to banks -- and through them, it appears, to troubled countries.

In December, the ECB said it would lend banks unlimited amounts of money to stabilize them. It also said it would lower the interest rate on the loans to 1 percent, extend the maximum term from one year to three and accept collateral of lower quality. The banks responded by borrowing 489 billion euros in three-year loans at a low interest rate, currently 1 percent.

The banks appear to have used at least some of that money to buy the bonds governments have been selling almost daily. The extra demand at the bond auctions also helps bring down the interest rates on the bonds.

However, the central bank has refused pleas to expand its limited program and buy government bonds itself on the open market. It says countries need to cut debt themselves and not expect a central-bank bailout.